Dive Brief:
- BlackRock recently launched a decarbonization fund in the United Kingdom under the jurisdiction’s updated Sustainable Fund Disclosure rules, according to a press release shared with ESG Dive.
- BlackRock’s BFM Brown to Green Materials Fund will be classified under the U.K.’s “Sustainability Improvers” label and invest in companies that deal in materials “essential for the low carbon transition” and other opportunities related to decarbonizing the materials supply chain, according to the Jan. 17 release.
- BlackRock Global Head of Thematic and Sector Investing Evy Hambro and two other fund managers will oversee the materials transition fund. Hambro said in the release that BlackRock is “targeting what we believe to be an overlooked segment of the value chain for lower carbon technologies.”
Dive Insight:
BlackRock said it will use its proprietary assessment methodology to ensure at least 70% of the fund’s total assets are invested in securities that contribute to its named objective, as required to comply with the SDR’s Sustainability Improvers label. The fund currently has assets worth over 16.1 million pounds (almost $20 million).
The U.K.-based fund follows another fund with the same name launched for European investors in June 2023.
The fund’s focus on the materials sector will include metals and mining, cement, chemicals, steel and construction materials. BlackRock said it believes companies in the sector will benefit from a re-rating as their decarbonization risks decrease, and the fund will give U.K. investors greater exposure to them.
“Companies which are high emitters today, but that have credible plans to decarbonise, could offer a significant investment opportunity,” Hambro said. “As the theme broadens out even further, these companies leading emissions intensity reduction efforts in their industries could benefit from a first mover advantage as the low-carbon materials market develops.”
BlackRock said its thematics team expects that the materials companies who are investing in decarbonization are expected to benefit from lower operational costs and capital requirements for decarbonizing compared to their “higher carbon peers.”
Hambro will manage the fund with Olivia Markham and Hannah Johnson, who also manage the European Union-listed version of the fund. To comply with the EU’s Sustainable Finance Disclosure Regulation labeling requirements, that fund invests at least 80% of its assets in investments that contribute to its objective. The fund has $78 million in assets under management as of this month.
Johnson said the materials companies that best navigate the transition to a low-carbon economy “could benefit from a re-rating in the valuation multiples the market is willing to pay for them.”
“We expect global adoption of lower carbon technologies will drive stronger-than-expected demand growth for materials required faster than anticipated, and this will result in higher materials prices and better-than-expected earnings for producers,” Johnson said in the release.
The United States’s own “Names Rule” — which will require funds with an objective in the name, like ESG or “growth,” to invest 80% of its AUM in securities to serve that purpose — is slated to go into effect by next year. The regulation was included in a September 2023 update to the Securities and Exchange Commission’s Investment Company Act.
The rule is scheduled to take effect for fiscal year 2026. Fund groups with over $1 billion in net assets have until December to comply — 24 months from the rule being published in the Federal Register — and groups with under $1 billion in net assets will have an additional six months.
